This new article by Tom Hill, "Beware prize fatigue," talks about the potential pitfalls of offering a lot of prizes.
Quote:
I was one of more than two hundred people who attended the Centennial Challenges workshop in Washington DC earlier this month. ... I felt an energy at the workshop, the feeling of something new which, even though no one knew exactly where things were going, they were interested in seeing what was happening...[But] NASA must contend with something I call prize fatigue. This will come into play when there are dozens of small prizes available for competition, diluting the number of inventors/entrepreneurs and news agencies interested in each particular prize.[i]

i think the "prize" for most people wont necessarly be the money, but rather the prestige for more well known catagories, and those will be what see the most advances. Take for instance the land speed record, each year someone goes for it, and because of the competitors drive to be number one the technology improves and advances are made. What the masses really need is someone to the lay the foundations for a "starting kit" to the stars. Which could be achieved through efforts such as the x-prize, then we will have people competed just for the glory and prizes could become null and void.

Granted there are two levels of prizes, but what is mundane to the general public can be extremely prestigious in narrower circles. A whole slew of Physics & Mathematical prizes come to mind which the general public would give a big shrug and rarely make a splash in the press...yet plenty of folks dedicate thier entire lives attempting to solve the puzzle...

Before the announcement of the Xcup, I had suggested that a follow-on prize would still be sub-orbital, but a transcontinental hop. A LA to Tokyo sort of prize as a stepping stone to a full orbital attempt.

Another suggestion would be a prize for the first team to inhabit a totally enclosed system for perhaps the theorized timeframe of a Mars mission...not the sensational BioSphere II effort, but a serious effort to solve some outstanding lifecycle problems and possibly psychological ones as well...it also allows biologists and other groups to play...not just propulsion and areospace engineers.

With all the talk of Space Elevators, perhaps a Carbon Nanotube manufacturing prize for cost, quality, & dimensions...